Pay Your Kids Today

Understand the pros and cons of giving part of your estate to your kids sooner, rather than later.

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Some parents like the idea of giving a gift of money to their children during their lifetime – to allow them to have cash when they really need it, whether to pay for a wedding, fund their education, or purchase a home. If you go this route, make sure you are comfortable with the amount you are giving, and know that once you make the gift, you could lose control over those funds.

There are no restrictions on the amount of money you can give to your children while you are alive, although you should ensure that your children are mature enough to manage the gift properly. If the gift is being made from a bank account, instead of from the sale of investments or other assets, then no tax will be paid on the money because Canada has no gift tax. If you need to sell assets to make the gift, then capital gains tax may be applicable.

When you gift cash to your children, you will be around to see them enjoy it. And, assuming they’re adults, if they invest the money and are in a lower tax bracket than you are, the investable income will be taxed at a lower rate in their hands.

When you gift cash to your children, you will be around to see them enjoy it. And, assuming they’re adults, if they invest the money and are in a lower tax bracket than you are, the investable income will be taxed at a lower rate in their hands.

You need to be aware that if your child uses the money to buy a jointly held asset with a spouse and they later separate, those assets would likely be shareable in a division of assets. You may consider protecting the gift so that it doesn’t become shareable: you could structure the transaction as a loan through either a promissory note or loan agreement. Your child may not be expected to make payments against the loan during your lifetime, but the amount of the loan can be later offset against the amount they will inherit.

If you’re giving money to some children and not others – and you ultimately want your estate divided equally to maintain sibling harmony – then ensure that what you give now is documented in your will. It should reflect that the children who are not receiving a gift now will receive the same amount from your estate later, and that the estate will then be equally divided once that amount is paid.

The information in this article is relevant for Canadian provinces and territories other than Quebec. You should always confer with an experienced family lawyer in your jurisdiction to understand the rules that apply to your specific situation.


Protecting your child’s inheritance from divorce

Will the inheritance or gift you leave to your child be subject to a family property claim if the child later separates or divorces?

Although the rules across Canada vary, in most jurisdictions inheritances and gifts may be exempt from a division of family property if the assets have been kept separate. The asset will usually become shareable with their former spouse if it is used to:

  • Purchase family assets, such as a home, cottage or vehicle
  • Pay down debt related to family assets
  • Make investments in joint names.

The best way to protect an inheritance or gift is for the child to invest it in his or her name alone and not add their spouse as a joint owner.

You can also include a clause in your will that attempts to protect your child’s inheritance by indicating that it is meant to benefit the child only, including any income and growth, and is not meant to be shareable. These types of clauses are not effective in every jurisdiction, but depending upon where your child lives at the time of separation, may be helpful in certain cases.

Of course, because laws are different across the country, and because they are always subject to change, the best way to protect specific assets is for the spouses to enter into a form of domestic contract – either a prenuptial agreement if they are not yet married, or a marriage contract if they already are.

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